Committee for a Responsible Federal Budget

Spotlight on the States: Ohio

May 19, 2011

Taking a break from all the recent developments in the budget and fiscal policy world, we take a quick turn to our Spotlight on the States blog series to see what budget battles in Ohio have been focusing on, and the possible solutions.

Back in March, Gov. Kasich proposed a $55.5 billion biennial budget ($26.9 billion in FY 2012, $28.6 billion in FY 2013) that attempts to close an $8 billion shortfall (15 percent of the budget). Gov. Kasich doesn't directly raise taxes (more on that later); instead, he balances the budget through a combination of spending cuts, privatization, and cutting funds for local governments.

Ohio's trouble for this biennium -- like many other states -- comes from the fact that they have relied on federal stimulus money to plug their fiscal holes in the past two years. With that money (mostly dedicated to education and Medicaid) drying up at the end of June, or the end of FY 2011 for states, Gov. Kasich is counted on to make his state's fiscal position more sustainable.

He proposes numerous reforms to Medicaid, involving greater use of managed care and reductions in provider payments, among other things. All in all, these reforms are expected to save the state $1.4 billion over the next two years. But even with the reforms, Medicaid still increases significantly from the previous cycle. The same cannot be said of other categories. Compared to 2009-2010 levels, Gov. Kasich cuts education spending by $700 million in 2012, although this is accounted for by the State Fiscal Stabilization Fund money from the federal government drying up. Other general areas of the budget, such as transportation and justice programs, also receive small cuts.

While Gov. Kasich does not propose any explicit tax increases, he does raise revenue in a somewhat backdoor manner. Ohio currently has three revenue sources -- the commercial activities tax (CAT), the kilowatt-hours tax (KWH), and the natural gas distribution tax -- that are partially designated to local governments to compensate them for lost revenue due to state tax changes in the past decade. Kasich proposes to gradually increase the share of those taxes that are designated to the state's General Fund (eventually reaching 100 percent in ten years). This would act as a revenue boon for the state, but a de facto funding cut for local governments. In total, reducing the local government reimbursements would reduce the state's deficit by $1.4 billion over the next two years.

Gov. Kasich's budget passed the Ohio House two weeks ago, but it still needs to be passed by the Senate. However, there has been an important development in Ohio's budget: the passage of a bill to limit public employee compensation. Similar to the one that generated so much controversy in Wisconsin, the bill -- which was signed into law by Gov. Kasich on March 31 -- limits the ability of public employees to collectively bargain and bars them from being able to strike, in addition to other compensation cuts. A fiscal analysis from the state government claims that this move would have saved the state $191.3 million in FY 2010.

And like Wisconsin, Ohio's budget battle features Gov. Kasich's spending-cut-only path to balance.  We'll see how it plays out.